Economics · Exchange Rates and PPP
The Balassa–Samuelson effect explains systematic deviations from absolute Purchasing Power Parity (PPP) by arguing that:
Verified Solution4 OptionsUpdated: October 2026👁️1 View
Share:
- 1Developing countries systematically undervalue their currencies to boost exports.
- 2Higher productivity in the tradeable sector raises wages across all sectors, raising non-tradeable prices in richer countries.✓
- 3Capital controls prevent exchange rates from reaching equilibrium.
- 4Transportation costs and tariffs create a permanent wedge between domestic and world prices.
Correct answer
Higher productivity in the tradeable sector raises wages across all sectors, raising non-tradeable prices in richer countries.
Download Single Question PDF
Save this question and verified answer as a clean study sheet with live clickable link.
👥
Share with Friends & Study Groups
Challenge your peer aspirants on WhatsApp or Telegram to solve this question!
Online Test Series
Start Free Mock Test →Preparing for Economics?
Practice full-length mock tests with real exam timers, instant score analysis, and all-India ranking.
Chapter Practice
Practice Exchange Rates and PPP MCQs →Want more practice questions on Exchange Rates and PPP?
Solve complete topic-wise tests with detailed solutions on GkGet.
Related Practice Questions
Recommended practice questions in Economics · Exchange Rates and PPP